The latest Royal LePage House Price Survey reveals that the Canadian housing market continued its upward trajectory in the third quarter of the year, with aggregate home prices surging by 3.6% year-over-year to reach an average of $802,900. While this growth may sound promising, a closer look at the numbers suggests a market in flux, as the company projects a 7% increase for the final quarter of 2023.
Market Correction and Impact on Prices
The third quarter’s performance didn’t meet earlier expectations, with a downward revision from the initial 8.5% forecast due to softer activity in some major cities. Notably, Toronto and Vancouver experienced a 0.8% dip in quarter-over-quarter prices, indicating a market correction in progress. This adjustment has taken place against the backdrop of increased borrowing costs and higher interest rates, which continue to impact the market nationwide. Despite two consecutive rate hikes over the summer, the Bank of Canada has maintained its key lending rate at 5%, reinforcing the potential challenges ahead.
Expert Insights: The Road Ahead
Phil Soper, the president and CEO of Royal LePage, offers his perspective on the market’s trajectory, stating, “Due to a more-sluggish-than-expected third quarter, we have revised our year-end forecast downward marginally. Overall, home prices will certainly close out the year above 2022 levels, when prices were nearing their lowest point in the post-pandemic correction. While trading volumes in most regions remain sluggish, Canada’s housing market is on solid footing, with pent-up demand building. We don’t anticipate a material change in property prices through the remainder of the year.”
Sector-Specific Data
The Royal LePage National House Price Composite encompasses data from 63 of Canada’s largest markets. Notably, the national median price of a single-family detached home increased by 3.4% year-over-year, reaching $833,600. The condominium market also saw gains, with prices up by 3.8% year-over-year to an average of $587,400. However, quarter-over-quarter data indicates a mixed picture, with single-family detached home prices down 1% while condominium prices edged up by just 0.1%. Despite these fluctuations, Canada’s aggregate home price remains 6.3% below the peak observed in the first quarter of 2022.
Inventory Challenges Persist
Soper highlights the ongoing challenge of limited inventory, stating, “While activity has softened in recent months and inventory is rising, we strongly expect that home prices will hold firm through the remainder of the year, with modest increases in some markets. Slower activity has allowed critically low inventory levels to build marginally in many regions, yet the quantity of homes available for sale in this country remains well below the level needed to keep a lid on property price increases.” This emphasizes the need for increased housing supply to meet the growing demand.
Interest Rate Speculation
The fate of the Bank of Canada’s key lending rate remains uncertain, with economists divided on whether it will be raised or maintained. Recent Gross Domestic Product (GDP) data indicates a stagnant economy in July despite the addition of 64,000 new jobs. The national unemployment rate holds steady at 5.5%, and inflation data will further inform rate decisions. Soper offers context, stating, “Looking back over the past half-century, today’s mortgage rates are in a normal range and well below the double-digit lending rates of the 1980s. It is the large gap between Canadians’ hyper-low, pandemic-period mortgages and today’s rates that have stifled activity. As with the introduction of the mortgage stress test, the market will adjust. It just takes time.”
Steadfast Housing Value
Despite the slowdown in sales, the Canadian housing market has maintained its value thanks to robust employment and a low mortgage delinquency rate. Soper points out,
“Low unemployment coupled with sound lending practices by our financial institutions has ensured that the vast majority of Canadians can continue to afford their homes despite the increased cost of living. To date, we have not seen a material rise in the number of mortgage defaults.” According to the Canadian Bankers Association, as of August 2023, only 15 of every 10,000 mortgaged households are more than 90 days behind on their payments, nearly the lowest level in many decades.
Positive Development: GST Rebate for Rental Buildings
The Canadian government has introduced new legislation offering a 5% Goods and Services Tax (GST) rebate for new purpose-built rental housing. This move aims to incentivize the construction of rental units, including apartment buildings, student housing, and long-term rental residences for seniors. Soper applauds this initiative, stating,
“The recent announcement offering tax incentives for new rental housing is a step in the right direction. We commend the federal government’s commitment to increasing the much-needed supply of quality rental stock in this country. We believe this will have a material impact on housing affordability for Canadians, especially in the greater regions of Toronto and Vancouver, where average rent prices have skyrocketed in recent years.”
Regional Variances
The Canadian housing market is not uniform, with different regions experiencing varied trends. While the year-end forecast was downgraded for Canada as a whole and for major cities like the Greater Toronto Area, Edmonton, and Regina, some areas remained stable. Vancouver, Montreal, Ottawa, Winnipeg, and Halifax saw their forecasts hold steady.
Surprisingly, Calgary stands out as the only city with an increased year-end aggregate price forecast. This is attributed to sustained market activity over the summer and a strong start to the fall season. The region has also benefited from increased interest from buyers across Canada, with prices stabilizing throughout the recovery.
The Canadian housing market remains dynamic, with various factors at play. While challenges like higher interest rates and limited inventory persist, the industry adapts and evolves to meet the needs of a changing market. The government’s incentive for rental housing construction is a positive step, and regional disparities indicate that opportunities and challenges vary across the country. The coming months will reveal whether the market continues to navigate the evolving landscape successfully.
